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TheStreet Open House

GDP Is Down but the Economy Will Be Fine

NEW YORK (TheStreet) -- There are two ways to look at the big downward revision in the government's estimate of fourth-quarter growth Friday, where the Commerce Department said gross domestic product rose at a 2.4% annual rate, instead of the 3.2% rate first estimated last month.

The funny version (apologies to the makers of the board game Clue): Who killed the recovery? The Republicans. In the House. With a budget axe.

The serious version: Nobody, really. The revisions still show solid growth that sets the stage for a better 2014, but with more short-term blips than we thought from the October government shutdown. The recovery is fine, if you know what to look for.

First, the basics. The economy grew 2.4%, as consumer spending rose at a 2.6% annual rate, much better than the 2% it posted in the third quarter. Investment rose 4.5%, well below the 17% rate of the third quarter; investment in commercial real estate nearly flatlined and residential investment dropped. Government spending at all levels fell at a 5.6% annual rate -- enough to shave 1.05 percentage points off the growth of the overall economy -- after making a small positive contribution to growth in the third quarter.

But this isn't as bad as it looks, for reasons I'll explain.

The private economy is now growing at a 3.5% annual rate, which is more than respectable. Growth in consumer spending accelerated, and consumer spending is 70% of the economy. The investment number, while not great, included a 10.6% annualized jump in equipment spending and an 8% rate of increase in spending on software and research and development.

That's Corporate America putting some of its giant cash pile to work as seed corn -- as it is supposed to do in a recovery just beginning to accelerate. This is what a gathering recovery looks like.

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